Physical analysis
Learn the three pieces of a reserve study's physical analysis, so you can read your own study instead of skimming straight to the total.
The physical analysis is the non-financial half of a reserve study: a component inventory of what the association must maintain, a condition assessment of each item's current state, and life and cost estimates for when and how much replacement will cost. It answers what you own and when it wears out, not how much to save.
Three pieces, one physical picture
Every reserve study splits into two halves: a physical analysis and a financial analysis. The physical half comes first, because you cannot fund what you have not counted. It has three parts: the component inventory (the list of assets the association is responsible for repairing or replacing), a condition assessment (what shape each one is in right now), and life and cost estimates (how many years it has left and what replacing it will cost).
"The physical analysis of a Reserve Study includes the component inventory, condition assessment, and life and valuation estimates."
Source: What's Included in a Reserve Study? Key Elements Explained, Reserve Advisors
Each piece feeds the next. The inventory tells the preparer what to inspect. The condition assessment tells them how far along each item is. The life and cost estimates turn that into a number: years remaining and dollars needed, which is what the financial analysis then builds a funding plan around.
The inventory barely moves. Everything else does.
A common misreading of a reserve study is expecting it to look different every year. Mostly, it should not, at least not the inventory. The list of components the association is responsible for changes only when the association adds or drops an obligation, a new roof section, a repaved lot. What does change every update is the assessment layered on top of that list: how worn each component looks this year, and how that revises its remaining life.
"The Component Inventory... should be relatively stable from year to year."
Source: What's Included in a Reserve Study? Key Elements Explained, Reserve Advisors
That's why a component's useful life and remaining useful life are two different numbers, and why the gap between them, the effective age, can shift between studies even though the item itself hasn't changed. If your board sees the pool resurfacing move from "5 years out" to "3 years out," that's an updated estimate, not a new component.
Where the cost numbers come from
The dollar figure attached to each component isn't a guess. Preparers typically price components "either by unit cost or cost in place," pulling from published cost manuals, from bids and invoices the association supplies, and from an in-house database of what other associations actually paid for similar projects.
"Reserve preparers typically price components either by unit cost or cost in place."
Source: Component Project Cost Estimates, Reserve Data Analyst
That makes the study's replacement cost a useful sanity check when a contractor's bid comes in, not a ceiling and not a substitute for getting competitive bids of your own.
Check yourself
Answer before you read the explanation, recalling it is what makes it stick.
This year's update shows the pool resurfacing due in 3 years instead of 5, but the pool is still the same line item on the list. What changed?
A roofing contractor's bid comes in 40 percent above the reserve study's replacement cost estimate for the same roof. What should the board do?
A new board member notices the component inventory section looks almost identical to last year's study, while the cost figures moved. What's the best explanation?
- What's Included in a Reserve Study? Key Elements Explained, Reserve Advisors
- Component Project Cost Estimates, Reserve Data Analyst
- National Reserve Study Standards (overview), Community Associations Institute
Reserves
Next: see how the physical analysis feeds the financial analysis and the funding plan built on top of it.
How often a physical analysis includes a full site visit, which components get inspected, and who is qualified to prepare the study vary by state and by which reserve study service level your association purchases. Check your governing documents and your state's statute for what's required.